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09/24/87 Alderman Drugs, Inc., Et v. Metropolitan Life

September 24, 1987





515 N.E.2d 689, 161 Ill. App. 3d 783, 113 Ill. Dec. 704

Appeal from the Circuit Court of Cook County; the Hon. Albert S. Porter, Judge, presiding. 1987.IL.1417


JUSTICE LINN delivered the opinion of the court. McMORROW, P.J., and JOHNSON, J., concur.


This action was brought on behalf of a class of pharmacies engaged in the retail prescription drug business in Illinois, which are or were "participating providers" under agreements with Metropolitan Life Insurance Company. The contractual arrangement, called the MediMET program, was designed to service the health insurance and prescription drug needs of certain major companies and their employees who belong to Metropolitan's group health insurance plans.

Plaintiffs' action for declaratory judgment was initially dismissed. On appeal from that dismissal, we reversed and remanded, holding that the complaint stated a cause of action, that an actual controversy existed, and that the trial court was to declare the rights of the parties under the agreement. Alderman Drugs, Inc. v. Metropolitan Life Insurance Co. (1979), 79 Ill. App. 3d 799, 398 N.E.2d 984.

Following a bench trial on remand, the trial court entered judgment against plaintiffs on their complaint and in favor of Metropolitan. Plaintiffs appeal, contending that (1) Metropolitan's termination of pharmaceutical providers which rejected amendments to the provider agreements constituted a breach of the implied covenant of good faith and fair dealing; (2) Metropolitan should be equitably estopped from terminating providers which rejected amendments to the provider agreements; and (3) the trial court erroneously applied the doctrines of impossibility and commercial frustration to permit Metropolitan to terminate providers which rejected the amendments.

We affirm the trial court.


In 1969, Metropolitan introduced MediMET to Illinois pharmacists. Under the program, members of a Metropolitan health insurance group, such as employees of General Motors or North American Rockwell, are entitled to purchase prescription drugs for a set deductible or "co-payment" fee (initially $2, then $3) from participating pharmacies. The pharmacy would then bill Metropolitan for the actual cost of the drugs plus a dispensing fee (initially $2.05 but then raised to $3.35) minus the employee's co-payment.

To become a participating provider under the MediMET plan, a pharmacist executes a MediMET Prescription Drug Agreement (provider agreement). At issue in the pending case are two of the paragraphs of the provider agreement, one of which is a termination at will provision. The other provides that the agreement shall not be amended except upon the mutual, written agreement of the parties. The former provision states:

"This Agreement shall remain in full force and effect until terminated by either party effective upon at least thirty (30) days written notice to the other, except that METROPOLITAN reserves the right to terminate, effective upon receipt of written notice by PARTICIPATING PROVIDER, for violation of this Agreement or for other good cause."

The other term of the provider agreement, upon which plaintiffs base their claims, states:

"This Agreement and the Schedule or Schedules attached hereto constitutes the entire understanding between the parties and shall not be altered or amended except in writing signed by both METROPOLITAN and PARTICIPATING PROVIDER."

The MediMET plan was a by-product of collective bargaining negotiations between General Motors and the United Auto Workers. Metropolitan was called in to implement a plan for providing prescription drugs to the employees at a nominal cost. Subsequently, Metropolitan began soliciting pharmacists to provide the service in areas where General Motors had employees. In time, more employers requested similar plans.

As part of its campaign to contract with pharmacists to provide the service, Metropolitan mailed out information packets with an application and form contract, as well as a fact guide. The fact guide explained some of the particulars of the program, such as the basis of compensation to participating pharmacists, the time period for reimbursement, limitations on drug quantities or refills, and the anticipated increase in the store traffic of the participating providers. In addition, Metropolitan conducted regional meetings with interested pharmacists to explain the details of the plan and communicated with individual pharmacists to address their specific concerns.

From the inception of the MediMET program in 1969 to approximately the beginning of 1977, the relations between Metropolitan and the plaintiff class were apparently amicable. The pending litigation arose after certain pharmacists were terminated from the program after they refused to accept amendments to the plans.

The specifics of the plans for various policyholders arose from collective bargaining between the policyholders-employers and the unions. Generally, Metropolitan would forward any amendments to the providers to accept or reject, with the stipulation that if the provider did not send in a written acceptance or rejection, acceptance would be presumed, especially when the provider continued to send in claims. In practice, this is what occurred, at least in some instances. However, plaintiffs' lawsuit is premised on the fact that some of the pharmacists were terminated when they declined to accept the amendments.

At issue in the pending dispute are the 1977 amendments to two of the plans, General Motors' and Rockwell's. These amendments increased the employee co-payments from $2 to $3 and increased the maximum allowable dosage for seven drugs from 100-unit doses to 200-unit doses. In addition, a new employer, American Shipbuilding Company, was proposed in January 1981. One of the class representatives, Edward Duffy, was terminated ...

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